What is EAD in SAP FS-BA-PM-CR - Credit Risk?

SAP Term: EAD

• Component: FS-BA-PM-CR

• Component Name: Credit Risk

• Description: Exposure at default Expected amount of receivables from the primary business partner at the time of default. The effect of collateral instruments is not taken into account here.

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• Key Concepts: 
  EAD stands for Exposure at Default and is a component of the Credit Risk Management (CRM) module in the Financial Services (FS) Business Application (BA) Platform (PM). It is a measure of the expected loss that a financial institution would incur in the event of a default by a counterparty. It is calculated by taking into account the amount of credit exposure, the probability of default, and the expected loss given default. 
  
  How to use it: 
  EAD is used to assess the credit risk associated with a particular counterparty. It is used to determine the amount of capital that should be set aside to cover potential losses in the event of a default. The EAD calculation can be used to determine the amount of capital that should be allocated to each counterparty, as well as to assess the overall credit risk associated with a portfolio of counterparties. 
  
  Tips & Tricks: 
  When calculating EAD, it is important to consider both the probability of default and the expected loss given default. The probability of default should be based on historical data and current market conditions, while the expected loss given default should be based on an analysis of the counterparty's financial position. 
  
  Related Information: 
  EAD is closely related to other measures of credit risk such as Credit Value Adjustment (CVA) and Credit Risk Mitigation (CRM). CVA measures the potential losses associated with changes in market conditions, while CRM measures the potential losses associated with counterparty defaults. Both CVA and CRM are important components of an effective credit risk management strategy.